Gold road ELKMFa mid-tier Australian gold producer, confirmed its interest in acquiring a stake in green stone gold mines – a Canadian joint venture project between Golden Equinox equalizer and Orion Resource Partners. With geopolitical conflicts escalating and a revived threat of inflation, mergers and acquisitions have accelerated as gold continues to rise to another new high.
The Greenstone project, located in the Geraldton-Beardmore Greenstone Belt in Ontario, will begin production soon. With a process plant that operates 365 days a year and an average production of 27,000 tons per day, its expected annual output is around 400,000 ounces of gold.
This news coincides with a period of operational adjustments at Gold Road's flagship Gruyere mine in Western Australia. The last quarter saw production shortfalls attributable to lower than planned availability of mineral extraction and processing plants. These headwinds also resulted in an all-in attributable sustaining cost of $1,273 ($AS1,973) per ounce, exceeding initial projections.
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The latest earnings call highlighted Gruyere's operating performance, including a 12-month lost-time injury frequency rate significantly below the industry average. However, challenges such as poor mining performance and lower-than-planned ore extraction impacted production and free cash flow in the December quarter.
More recently, the mine struggled under heavy rains across the region, which disrupted operations in March.
In 2023, Gruyere produced 322,000 ounces of gold at an all-in attributable sustaining cost of $1,073 (A$1,662) per ounce, slightly outside the annual guidance range. Looking ahead to 2024, Gold Road forecasts gold production of between 300,000 and 335,000 ounces at an attributable all-in sustaining cost of $1,226 (A$1,900) to $1,323.5 (A$2,050) per ounce.
Operational improvements, including increased waste movement and construction projects, aim to improve productivity and profitability. However, labor availability remains a looming concern; Therefore, management's decision to diversify into a Canadian project is not surprising.
However, investors did not like the news: Gold Road's share price closed down 6.59%. The main concern appeared to be the potential cost associated with acquiring Greenstone, as rumors suggested a price tag north of $650 million, raising questions about the company's ability to finance such a substantial purchase.
While the company is completely debt-free, its $100 million cash balance means taking on a lot of debt or issuing a significant amount of equity, which could dilute existing value for shareholders.
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